Does It Take A Commission

The Concord Coalition

Improving the Long-term Fiscal Outlook:

Does it Take a Commission?

May 15, 2006

National Press
Club, Washington D.C.

Robert Bixby:
Okay, I think we should get started. Boy, it's great to see a room full of
people interested in long-term fiscal policy on a Monday morning. This is very,
very good to see. My name is Bob Bixby; I'm the executive director of The
Concord Coalition. On behalf of all the panelists, welcome to our discussion
this morning on the long-term fiscal outlook and the question, "Does it take a
commission?"

We are going to
hear from a panel of experts who will look at various aspects of what a
commission might do.

Warnings abound on
the long-term fiscal outlook. We had them again just recently from the Social
Security and Medicare trustees, with their annual reports saying that the two
largest federal programs are on an unsustainable course. Dave Walker at the GAO
has been warning about this for some time. The Congressional Budget Office also
has been warning that long-term fiscal policy is unsustainable, and yet nothing
seems to happen on the legislative front. Given that dilemma, it is natural to
ask: "should we just appoint some sort of commission and turn it all over to
them?"

It sounds like a
logical solution, except when you think about it there have been a number of
commissions that have already looked into this.

In the past few
years, we have had a Social Security Commission, we have had a Medicare
Commission, we have had a Tax Reform commission, and we have had a Commission on
Entitlement and Tax Reform. All of them have produced some good work, made some
suggestions, and helped define the issues. But we still have not passed any
legislation that would improve the long-term fiscal outlook. In fact, we seemed
to be more inclined to pass legislation that makes the long-term outlook worse.

Nevertheless, the
idea of a commission is sure to come up again, and it looks like there are
several proposals on the table now. We thought it would be a good idea to say,
well, okay if we are going to go down the commission road again, let's take it
seriously. Let's look at what the commission should do, what we can expect of
the commission and how it might be best structured for success? Our speakers
will be talking about that today.

First, we are
going to hear from Chuck Blahous who is Special Assistant to the President for
Economic Policy. We are very glad that Chuck could be here today. Of course,
one of the proposals out on the table is the President's idea that he floated in
the State of Union Address for an entitlements commission, and Chuck is going to
talk a little bit about the President's hopes for a commission. Following that,
we will have remarks from David Walker who will look at some of the experiences
of past commissions and lessons learned. Next, former Congressman Charlie
Stenholm will look at the political context and then we will get into the panel
discussion with our experts about some of the key issues that a commission would
have to address. Finally, I think we will have plenty of time for Q&A.

We will go first
with Chuck Blahous. If there is anybody who knows about commissions on
entitlements and long-term fiscal policy in Washington, it is Chuck Blahous. I
think he has been associated with just about all of them. As a staff member on
the Hill when he worked for Senator Gregg, and when he worked for Senator
Simpson, he was involved with the Kerrey-Danforth commission in the mid-1990's,
and also with the CSIS commission on retirement policy, which Dave and Charlie
served on.

And, of course,
Chuck was the executive director of President Bush's Commission on Social
Security Reform. He is also an expert chemist, so if you are talking about
putting the elements together for a success, Chuck is really the guy to do it.
I also want to say this about Chuck. He has the scars to prove that he has been
through the entitlement wars, but I can say on the staff level that he is a guy
who is always willing to work in a bipartisan way and that is the spirit that it
is going to take to get something done. So Chuck, on to you.

Charles
Blahous: Well, thank you Bob for that very kind introduction and thank you
to The Concord Coalition more broadly for putting together this event. I'm very
pleased to be here. I'm particularly pleased that we have such an illustrious
panel here to talk about how we might create a constructive and fruitful
bipartisan entitlement commission. As Bob indicated, I have had the pleasure in
my professional capacity of serving at the staff level on a commission on which
two of our panelists worked, Congressman Stenholm and Comptroller General David
Walker, both of whom were on the National Commission for Retirement Policy.

It was an
exceptional experience for me to work with each of them. They were both
surpassing in their commitment to taking an unflinching look at the fiscal
realities facing us in the retirement policy area and also really showed an
uncommon ability to bring together people who are starting out in different
places, people with different viewpoints, and to locate the points of common
ground on which the commission could unify as well.

I'm pleased to
know there are a number of speakers here whose work I admire. There are some
personal friends on the panel as well. I'm hoping that Maya will devote a
portion of her remarks to the subject of how to a get a newborn baby to sleep
more than six hours a day but if not, I'll take that up with her later, thank
you, Maya.

This is a matter
of great importance to the President as it is to the nation. We see this as a
singular challenge facing the country that has been troubling us for some time
and by that, of course, I refer to the chronic and persistent shortage of
bipartisan commissions in Washington, which the President's proposal was
designed to address. Actually, more seriously, we do view these issues as a very
fundamental, very important. The President says frequently, and I know that he
earnestly believes that the job of a President is to confront the great national
challenges, not to pass them off for future generations to deal with.

Here we truly have
critical and fundamental challenges before us that will influence the type of
America, certainly in an economic sense, that we will leave behind for our
children and grandchildren. As Bob indicated, the President stated at the State
of the Union Address, a proposal for a bipartisan entitlement commission. He
specified that it should include members of Congress from both sides of the
aisle, and he talked specifically there about the need for this commission to
examine the impact of the aging baby boom generation upon such programs as
Social Security, Medicare, Medicaid and indeed the federal budget as a whole.

Obviously,
substantively, these are incredibly important issues and I want to say a little
bit about the details of what we are facing. Our current budget projections
show that although we have projections of declining deficits over the next
decade, those projections turn around and turn into rising long-term deficits,
ultimately driving debt, federal debt, to unsustainable levels. And the
troubling thing about these projections is that they are remarkably resilient to
changes in the assumptions. Whether you change the assumptions for economic
growth or productivity or demographics, you still see the same basic qualitative
picture.

And the basic
drivers of this problem, first and foremost, are our aging population, the fact
that people are living longer, and when you couple that with the fact that
healthcare costs are growing at the rapid pace that they are, you see enormous
impacts on the federal budget through obviously Medicare and Medicaid, but also
on Social Security.

Now these are not
distant or long-term projections. We are not talking about something that may
or may not happen 20 or 30 years out. This is something that is going to begin
to develop in very short order. The first baby boomers are going to hit Social
Security eligibility age in 2008, just two short years away, and they become
Medicare eligible in 2011.

So we are going to
have more and more seniors collecting more and more benefits in real terms from
these programs. And each cohort, each generation, under current projections,
stands under current law to receive benefits per capita that are more than the
generations before them received in terms of federal expenditures. Obviously,
the biggest factor here when it comes to Medicare and Medicaid is the phenomenon
of healthcare costs growth.

Over the last two
decades, health spending has grown 2.2 percentage points faster than GDP, and
total US health spending has grown from about five percent of GDP in 1960 to
about 16 percent in 2004. While at the same time that national healthcare
spending has risen dramatically, the federal share of that healthcare spending
has also risen very dramatically. It grew over that same period from 10 percent
of total spending to 32 percent of total healthcare spending. So when you put
those two factors together, rising healthcare spending and the rising federal
role in that healthcare spending, it is obvious mathematically that you are
going to have an enormous strain on the federal budget mostly through the
programs Medicare and Medicaid, but anywhere where healthcare spending rears its
head.

Now, Medicare is
obviously projected to grow faster than Social Security, but Social Security,
too, is growing faster than its underlying tax base. And this is due to the
growth in the beneficiary population, which will begin to accelerate in a few
short years and you couple that with the fact that the Social Security benefit
formula is wage indexed, and each subsequent cohort in Social Security gets
benefits that are higher in real terms than the one before, generally. As a
consequence, Social Security benefit payments, which now absorb about 11 percent
of taxable worker wages, is projected to grow to over 17 percent by 2035.

Now both Social
Security and Medicare are reported on annually in the Social Security and
Medicare trustees' reports. And to steal a point that Mr. Walker often makes in
his remarks and in publications, the actuarial imbalance of Medicare and Social
Security in a certain sense, understates the actual fiscal pressures arising
from those programs. For example, Social Security in 2035 under current
projections is still technically solvent. It is not projected to be insolvent
until 2040. This does not mean, however, that we have no fiscal issue in 2035.
Clearly in 2035, the program is projected to place a far greater burden on
future budgets and future taxpayers than it does today. Clearly, we need to
look at these programs somewhat more comprehensively than simply looking at
actuarial imbalance alone if we want to see the real impact on the federal
budget and on the economy as a whole.

Now primarily, and
most difficultly, this is a problem of cost growth. The way that the federal
tax receipts work under current law is such that over time due to bracket creep,
and the fact that we have real economic growth and have real wage growth in our
economy. If you simply let current law operate on auto-pilot, what happens over
time is that federal taxes will absorb a larger and larger share of the economy
in federal taxation simply through the phenomenon of bracket creep. So when you
look out into the distant future, you actually see projections of federal
receipts out in that distant future that are significantly higher than we have
today, both in absolute terms and as a percentage of the overall economy. But
despite that, despite that projection of higher receipts in the future as a
percentage GDP relative to today's levels and relative to historic norms, we
still have this enormous projection, this projection of enormous deficits.

Clearly we have a
fundamental problem here of cost growth, even far outpacing the growth of
federal revenues in the future. It is going to take bipartisan action to make
progress on these issues. Elected officials, whether in an entitlement
commission form or anywhere else, they are going to have to put politics aside
and take action on behalf of our children and grandchildren. We do not really
have the luxury at this point of waiting for a forcing event as we had in 1982
and 1983, such as Social Security trust fund insolvency.

If we wait until
2040 to deal with Social Security, we will already be at a point where the
burdens imposed by the program, the drag in economic growth, and the strain that
is placed in the federal budget are already far worse than Americans have been
willing to carry in the past. Moreover, we should deal with these programs now
if for no other reason so that reforms can be gradual and fair and equitable and
smoothly implemented.

The President is
very committed to addressing these issues. We want input from experts like
these and others on how to create a successful commission and I put a capital
"S" under the word "Successful" there. We are studying and continue to study
the examples of past commissions. I myself, despite Bob's kind and glowing
words, am far from an expert on how commissions operate in the larger sense, but
I do have some familiarity with past commissions in the area of Social Security
alone and I would like to say a little bit about the commission experience on
Social Security and the types of examples we have before us as to how we might
go forward.

I would group the
Social Security Commissions in the past into three basic groups. The first
group would be those commissions that were unable to agree on unified
recommendations to report out from the commission as a whole. These commissions
occasionally would have single members or sub-groups of the commission who were
willing to put forth comprehensive proposals to put Social Security on a
sustainable long-term footing. But for one reason or another, there was an
inability to get critical mass of the commission to agree on recommendations.
Two examples of these would be the Kerrey-Danforth Commission of 1994 and the
Social Security Advisory Council during the Clinton administration from 1994 to
'96. If you read through those reports, you see some remarkable, very
comprehensive proposals put forward by sub-groups of those commissions but the
commissions as entities, as wholes, were unable to report unified
recommendations.

The second
category would be the commissions that have been able to report recommendations
and have been successful in fostering and inspiring legislative action upon
those recommendations. The most obvious example of this is the Greenspan
Commission which reported in 1983, labored throughout most of 1982. That is an
example of a commission where there was sufficient buy-in from legislators in
the commission process so that afterwards, after the commission reported its
recommendations, Congress did choose to act upon those recommendations and in
fact, Congress did part of the work themselves.

The Greenspan
Commission reported two-thirds of a solvency package and Congress filled in the
remaining third from options put forward by the commission. So you could list
the Greenspan Commission as an example of a political success. From a
substantive standpoint, the review would be somewhat more mixed. They certainly
made incremental progress on the Social Security problem but although the
commission advertised a "75-year fix to Social Security," it certainly was
anything but. In fact, we are already basically back to square one with respect
to Social Security. Its long-term deficit right now is projected to be roughly
the same size as it was back in 1983 and here it is barely two decades later.

So while there was
incremental progress made on Social Security solvency in 1983, the program was
not placed on a sustainable course, and the reason we have to be mindful of
that, is that this time around we do not really have the luxury of just making
incremental progress. If we are back to square one 20 years from now, that is
going to be in the heart of the period of time that the baby boomers are
swelling the retirement roles. It is going to be very, very difficult for
future generations to make meaningful and systematic and structural changes to
these programs at that point. So it is very important that we take a step
further this time and put these programs on something closer to a sustainable
course.

The third type of
example would be a commission that was able to put forward unified
recommendations on how to place the program on a structurally sustainable basis
but was unable to foster and inspire legislative action. And two great examples
of that are President Bush's 2001 Social Security Commission and the 1998
National Commission on Retirement Policy in which both Congressman Stenholm and
David Walker served. Both of those commissions put forth glowing, very
comprehensive, very detailed reports and unified recommendations that would have
put Social Security on a long-term sustainable footing. But in neither of those
instances, probably for different reasons in either case, were the reports
followed up upon by legislative action.

Clearly, what we
need now is a commission structure that succeeds on all the various criteria
that I outlined above. It needs to be able to produce some type of unified
recommendation. It needs to be able to produce effective results in terms of
ensuring the long-term sustainability of Social Security and Medicare and other
entitlements, and it must foster and inspire action on those recommendations.
And I look forward to the thinking of this panel on how exactly we can
accomplish all of the above.

Clearly, in order
to accomplish these objectives, there are a lot of things that have to be
considered, both in terms of substantive gains in terms of ensuring buy-in from
the participants. The scope of the commission's work, the ground rules for its
deliberations, the criteria for success, again referring to the experience of
the National Commission on Retirement Policy, I think Comptroller General Walker
will agree with my memory here, that that commission flailed for a long time
without making any progress on recommendations until the point where with his
leadership and a few other key members of the commission, we are able to very
systematically define what was going to constitute a successful unified
recommendation. And when we put together those criteria for success, then we
are able to start bringing the members of the commission together in something
of an organized way towards unified recommendations.

Other important
considerations are the composition of the commission, the balance between the
elected officials and the outside experts. The President did say in the State
of the Union Address that a commission should include members of Congress from
both sides of the aisle. He left open whether the commission would also
incorporate outside experts in addition to the currently elected members. We
are looking for input on all these.

I have spoken long
enough. This is an excellent panel, thank you for having me. I look forward to
hearing all of your wisdom. Thank you very much.

Robert Bixby: Thank you very much, Chuck.
We are going to hear next from Comptroller General David Walker who is not just
Comptroller General of the United States, but a former trustee of the Medicare
and Social Security Programs and, as we have mentioned, a member of some
commissions that have looked at these issues in the past. He will reflect on
some of the lessons learned and talk about what they might mean for the success
for a new commission. Dave?

David Walker:
Thanks, Bob. It is good to be with you. Before I get into lessons learned
about some of the past commissions and some of the key common denominators that
might help to increase the chance of success, I would note why do we even need
to think about a commission?

The reason we need
to think about a commission is because the nation's financial condition is worse
than advertised. We are running large structural deficits that are only going
to get worse when the baby boomers retire. We are not going to grow our way out
of the problem. We are going to need to reform entitlement programs, reengineer
the base of discretionary spending, and look at the revenue side in order to
make the numbers work over the long term. We need to re-impose budget controls
in the short term, but clearly we are going to need to have entitlement reform.
But entitlement reform is not enough; we are going to have to do more than
that.

With that, let me
start off with some of the factors that have contributed to either past
commissions being successful or failing to be successful and in doing that, I
have looked at seven policy-oriented commissions: The Greenspan Social Security
Commission, the National Economic Commission, the Kerrey-Danforth Entitlements
Commission, the Breaux-Thomas Commission on the future of Medicare, the 9/11
Commission, which is both operational as well as policy, as well as the Bush
Social Security Reform Commission, and finally the Mack-Breaux Tax Reform
Commission, the most recent.

If you look at all
those commissions, they all dealt with policy issues one way or another. I
would respectfully suggest that there are a number of factors that help to
determine whether or not they were likely to be successful or not and let me
share with you some of those factors.

First, was there
an imminent crisis or action-forcing event? In the case of the Social Security
Reform Commission of 1982-1983, the answer was yes. The checks were not going
to go out on time. The modern-day equivalent of that for Social Security is
around 2040, so that does not exist.

Secondly, in the
case of the 9/11 Commission, we had been struck by terrorists with a large loss
of life, and there were significant concerns among the American population as to
what was coming next. Therefore, that was an action-forcing event. For the
balance of these commissions, there was not an immediate crisis nor was there an
action-forcing event.

Was there a
statutory basis? For some of these, the answer was yes, but interestingly in
the case of the Greenspan Social Security Reform Commission, which you will find
out meets most of this criteria, the answer was no. Yet there was agreement on
behalf of the President and the Congress regarding the need to act. It was done
by executive order with the advanced agreement by the Congress to take the
recommendations seriously. But again, I come back. The checks were not going
to go out on time. And believe me, that is an action-forcing event.

In the case of the
9/11 Commission, yes, there was a statutory basis. Was there a presidential
commitment and leadership? I think in the case of the Greenspan Social Security
Commission, the answer was clearly yes. In the case of the 9/11 Commission, I
would say it was a partial commitment. With regard to the next factor, was the
charter or scope of the commission broad or restricted? Namely, were they able
to address all the issues that they felt were necessary in order to come up with
a comprehensive and integrated solution or were there constraints placed on them
from the outset as to what they could or could not consider, such as revenues
versus benefit restructuring, et cetera?

In both the case
of the Greenspan Commission and the 9/11 Commission, they were both given broad
charters. I'm not talking about the other Commissions much because quite
frankly, they fail most of these tests. Therefore, I'm going to focus on the
two that passed most of the tests. Were there joint presidential and
congressional appointments? In the case of the Greenspan Commission, it was
yes. In the case of 9/11, it was [also yes]. It came from Congress. With some
initial trepidation from the administration, but later on to receive it more
favorably.

Were they
bipartisan? The answer is yes. Anytime that you are talking about making tough
policy-oriented changes, you need presidential leadership, you need presidential
commitment, and you must have at least a few players on both sides of the aisle
in Congress who are willing to lead the charge and look at these issues as
patriots rather than partisans. Were there co-chairs? In the case of 9/11, it
was yes in substance. In the case of the Greenspan Commission, it was no. But
obviously Senator Moynihan played somewhat of a vice-chair type of role.

Were there current
elected officials involved? In the case of Greenspan, the answer was yes. In
the case of 9/11, the answer was no. But then again, you are talking about
security. And when you are dealing with security issues and the public outcry
involved, clearly there was going to be a reason to act even though active
public officials may not have been part of the commission.

Was there a
balance between elected officials and experts who actually knew the substance of
the topics in more depth? In the case of Greenspan, the answer was yes. There
was a balance between those that were elected officials and people who were
known as being expert and credible on some of the issues.

Was there an open
and transparent process, including public hearings? The answer for both
Greenspan and 9/11 was yes with a footnote. In the case of the Greenspan
Commission, because it was subject to FACA or the Advisory Committee Act, there
were a number of dealings that took place with smaller numbers of people in
order to try to cut deals that otherwise you would not be able to do in a public
forum and there is no reason that could not be replicated.

Did the commission
render a report? In the case of both Greenspan and 9/11, the answer was yes.
Did they put forth recommendations that were specific enough in order to be able
to increase the likelihood of action? The answer for both of these commissions
was yes.

Was the Congress
and/or the President required to act on these recommendations? Now, for both of
the Commissions, the answer was no. There was not a statutory requirement such
as the Base Realignment and Closure Commission where you had to have an
up-or-down vote. There was nothing like that and at the same point in time if
the checks were not going out on time and millions of Americans were concerned
about their security, I would respectfully suggest you probably did not need
it. Did the Congress and the President take action based upon the
recommendations? In the case of the Greenspan Commission and the 9/11
Commission, the answer was yes.

In the case of all
of the other commissions, the answer is no. So I think we can be informed by
history. All too frequently, we have people who do not learn the lessons of
history. I think there are some lessons to be learned here if in fact there is
going to be a commission. But then in this town, commissions serve two
purposes. They either serve the purpose of punting and delaying or they serve
the purpose of trying to facilitate action and as I say, going for it. Well,
I'm from Alabama and Bear Bryant used to always say, "We go for it. We don't
punt."

And that is what
exactly what we need to do because everyday we delay, the tab is running higher,
time is working against us. The degree of change is going to be more dramatic
the longer we wait, the time for transition would be less, and the amount of
disruption will be more significant. It is going to take action and a
commission may be a way to get it done.

So then the
question is what are some of the criteria that should be considered? First, why
do we need thIS? I have touched on that. Who should the players be? I have
touched on that. Are they going to have a specific proposal? I have touched on
that. And then another factor is when? Well, there is a great debate today on
whether or not it is likely to happen this year, in part because the elections
are going to be very contested this time. Sooner or later, we have to recognize
that the public interest has to trump partisan interests.

We have come a
long way since the founding of this Republic in 1789, when we had part-time
politicians who were not career politicians, who focused more on the public
interest rather than partisan games. And that has poisoned the well in being
able to make progress on a number of important fronts. We need to get past that
and sooner rather than later.

In closing,
because I want to get to my colleagues, I think we have to keep in mind that we
have a stewardship responsibility as public servants to not just generate
positive results today, to not just try to leave things better off when we leave
than when we came, but to leave things better positioned for the future. We
must not punt and leave the burdens for our children and grandchildren. The
baby boomers may be the first generation in the history in this country not to
leave it better positioned for the future. It gets a failing grade on that
element today. That needs to change, and it can change with committed
leadership and bipartisan action.

There is, however,
a credibility gap on entitlement reforms because after all when Congress passed
the largest expansion of entitlements in decades in the form of Medicare Part D,
it is kind of hard to be able to go back to the American people and say, "You
know, we really need to reform Social Security which is underwater by about $5.7
trillion plus when we just passed a benefit that cost $8 trillion plus to be
passed into law. I call that a "credibility gap."

And last, but not
the least, do not underestimate the importance of making progress in this area.
It is going to have to be more than entitlements. It is going to have to be a
taxes and entitlements Commission. Do not underestimate the importance. Our
future economic growth, our future standard of living, and the future of
National Security of the United States is at stake, nothing less than that.
Thank you.

Robert Bixby:
Thank you very much, Dave. And now, we will get some political perspective,
setting the political context for whether or not we can go for it and charge
over the goal line. I will hand the ball on that to Charlie Stenholm who is a
senior policy advisor now with Olsson, Frank and Weeda. Charlie served 26 years
in the Congress, worked across the party aisle, was a leader of the Blue Dog
Coalition and his leaving Congress gave him the opportunity to join the board of
directors of the Concord Coalition and also the Committee for a Responsible
Federal Budget, so at least Maya and I get something out of that. Thank you,
Charlie. We will turn it over to you.

Charles Stenholm:
Thank you, Bob. An initial disclaimer of the views and actions that you are
about to hear from me and the suggestions contributed to me being here as a
former member of Congress today.

So does it take a
commission? Most of us in Congress would hope not, but I hoped last year that
Congress and the President would take action to address the financial challenges
of Social Security. But neither party seemed interested in a serious discussion
about the tough choices necessary. Those challenges will continue to get worse
and become harder to address the longer we wait.

As we all know,
the challenges facing Medicare and Medicaid are much greater. The experience of
last year convinced me that we do need to establish a bipartisan commission to
objectively review the policy choices we need to confront with regards to the
retirement of the baby boom generation and to make recommendations to Congress
and the President. We have heard the description of those commissions in the
past, and they have had been a dime a dozen. There are those that have worked
and those that have not, and there are some threads of those that work.

Now today, neither
party wants to be the first to step out with tough choices out of fear that they
will be attacked politically, and they will. Neither side is willing to suggest
that they are open to compromises out of fear that the other side will not
reciprocate, and they will not. The public has not been engaged in an honest
discussion about the challenges that is not colored by partisanship or
ideology.

A commission could
help advance the debate, break the political stalemates, and give both parties
the cover to do what they know needs to be done. A commission with stature and
credibility could engage the public in an honest discussion of the challenges we
face and raise the profile of the issue. Commission recommendations, which
address the trade-offs and compromises that will be necessary, could break the
"who-goes-first" logjam between the parties. A commission with stature and
respect, which recommends tough choices and explains why they are necessary,
could give cover to both sides - Republicans and Democrats - in Congress, the
current administration, or whoever is elected President in 2008.

Right now, the
perception is that a commission would give cover to Republicans. But after the
next elections, Democrats may have a greater obligation or need to say how they
would address these issues and could use the cover of a commission as well.

Now, some of the
key elements for a commission that would be successful politically, i.e.,
building consensus for a solution that is enacted into law. Number one,
presidential leadership. The President needs to use the bully pulpit to draw
attention to the commission's work and make it clear that he intends to follow
through on the commission's recommendations and not let them quietly fade away.
If the President makes it known that he will put the issue on the agenda, the
work of the commission will be taken seriously.

Number two, a
meaningful Congressional role. It is important that the commission not be seen
as the President's and that Congress has some shared ownership of the
commission. Congress needs to have input into the structure, mandate, and
membership of the commission, either formally or informally. It is encouraging
that the administration has been moving slowly and going forward with their
commission suggestion while they quietly consult with Congress instead of
rushing forward with their approach.

Number three,
participation by all points of view. The commission must have members who have
credibility with the various stakeholders and partisan ideological interests,
but who are not too wedded to the status quo and unwilling or unable to
compromise. Having commission members reflecting various interests and
ideological views will make it harder for the commission to reach an agreement,
but more likely that the recommendations will have credibility with Congress and
the public and stand the chance of passage. The only criteria for membership on
the commission should be whether or not a person is committed to trying to be a
constructive part of the solution.

Number four, a mix
of experts with knowledge and credibility. The Center for Strategic and
International Studies, National Commission on Retirement Policy, was co-chaired
by members of Congress with the rest of the members being outside experts
without a partisan agenda. The elected officials generally relied on the
experts to develop options and put the plan together. But the experts relied on
the elected officials to make sure the recommendations were politically viable.

Having sitting
members of Congress on the commission ensures that the perspectives of Congress
are represented and the commission has advocates to advance recommendations in
the legislative process. But too many members of Congress and you simply
replicate the partisan divisions and turf battles that prevent action in
Congress today. The Greenspan Commission had members with credibility among
seniors, business, and labor and was successful.

The commission
should have one basic ground rule. All options should be on the table and
members of the commission should not go into the process with preconditions
about what must be included or excluded from a final solution. The commission
should be allowed to consider and discuss in the sunshine the full range of
options and debate the trade-offs; it is the only way the public will know what
the choices are. Everyone must resist the temptation to immediately shoot down
ideas they do not like. Let an idea fly in public debate long enough to
consider its merits.

Now, to those
quail hunters in the room, you understand sportsmen do not shoot them on the
ground. Skillet shots may fill the skillet, but they destroy the covey for the
next year. Same is true on considering entitlement commissions. Personally, I
strongly agree with former Treasury Secretary Rubin that the commission should
be allowed to examine rolling back tax cuts and other options to increase
revenues. That does not mean that the commission must recommend those steps,
just that they should be part of the discussion as part of the solution.
Likewise, a discussion on keeping taxes at current levels, which will require
substantial changes to scale back the cost of these entitlement programs, should
be on the table. Both sides have to agree that everything is on the table for
discussion even if they do not support those policies. Neither side can insist
on what must be included in a solution.

Now, the
procedures of enforcing are key. The base-closing commission had one attribute
that should be considered. The appointment of a commission should be
accompanied by a procedure requiring congressional consideration of the
commission recommendation either as a part of the budget process or in separate
legislation with votes required on the recommendations along with alternatives.
Those who oppose the commission recommendations should be challenged to present
alternatives and given an opportunity to have them voted on. To put even more
teeth into this requirement, the consequences of inaction should be worse for
all of the parties than action.

We might consider
prohibiting the consideration of any tax cuts or entitlements spending increases
with long-term cost including extension of the tax cuts, which expire in 2010,
or expansion of Medicare prescription drug benefits until Congress has addressed
the existing long-term fiscal challenges by approving the commission's
recommendations or an alternative approach to closing the long-term gap. Or we
might consider automatically suspending the indexation of all tax code and all
benefit programs, i.e., spending increases, which would have the result of
increasing taxes and cutting spending across the board until Congress acts. In
other words, allowing the luxury of a member of Congress to vote no and go home
and tell his constituency he was really for them would not be an option.

There would be a
consequence for action or inaction. Providing political cover to me is very,
very critical, too. Commission members from both parties should pledge to
defend any member of Congress or public official who is attacked for supporting
the commission's recommendations or putting forward a credible alternative.

There should be an
honest and healthy debate about the commission's recommendations and alternative
solutions, but no one should be subject to political attacks for acknowledging
there is a problem and endorsing steps to address it. Anyone who criticizes the
commission's recommendations has an obligation to say what they would do
instead. It is too easy to attack a serious proposal to deal with the fiscal
challenges posed by comparing it to current promises, but the current promises
are unsustainable.

And finally, if
the President is serious about working with Congress to establish a bipartisan
commission to deal with these issues, he will find support in the Congress on
both sides of the aisle. Last year, Senator Chuck Hagel and Congressman John
Tanner introduced a bill to establish a commission. Currently, Congressman
Frank Wolf and Senator George Voinovich are working on a proposal that would
establish a commission. Congressman Jim Kolbe and Allen Boyd have worked on a
proposal for quite sometime.

And to put in
today's total subject context of doing another commission, I would sum it up
with whatever the commission does, it must protect our grandchildren and perhaps
we need a guest-worker program to get it done. Thank you.

Robert Bixby:
Okay. Now, we will move to the panel and I think we will just keep our seats
for that. Let me introduce our distinguished panelists. Our purpose here is to
get some ideas on the table.

Before the
commission takes up its work, there are obviously a number of issues to deal
with, such as defining the scope of its work. Is it going to just deal with
entitlements or be an overall fiscal commission, as former Treasury Secretary
Rubin has proposed. That is obviously a threshold question. Other key questions
are the timing, the membership, the method of reporting, things like that.
There are some key, substantive issues that will have to be addressed too and
our panelists will deal with some of the tough choices that will need to be
addressed.

Stuart Butler is
Vice-President for Domestic and Economic Policy at The Heritage Foundation.
Isabel Sawhill is Senior Fellow at Brookings. I'm tempted to say Isabel Sawhill
on Stuart's right, but I will not say that. She is a Senior Fellow and
Vice-President and Director of Economic Studies at the Brookings Institution.
Maya MacGuineas is Director of the Fiscal Policy Program at the New America
Foundation and President of the Committee for a Responsible Federal Budget. Joe
Minarik is Senior Vice-President and Director of Research at the Committee for
Economic Development (CED).

Most importantly,
all of these panel members are colleagues of mine and frequent travel companions
on what we call the Fiscal Wake-up Tour. We have all been doing forums like
this around the country, not talking about commissions but talking about the
long-term fiscal outlook and the need to take it seriously and try to engage the
public in a dialogue about the hard choices in confronting these realities.

But today, we are
not on the road. We are here in Washington to talk about the idea of a
commission. And Stuart, why don't you lead us off?

Stuart Butler: Thank you, Bob. Actually I
was just waiting for the sporting analogy you seem to be applying to everybody.

Robert Bixby:
Kick us off.

Stuart Butler:
Well, I was going to say perhaps you might find it very challenging to think of
a cricket metaphor.

I'm a very strong
supporter of an entitlements commission in part because of the wisdom with which
the speakers discussed the issue. I think it is critically important
politically and substantively. I would like to focus on the issue of taxes with
regard to the chemistry of a commission.

Before I talk
specifically about what might be done, let me reemphasize what the core problem
is that we are really trying to address in terms of looking at the long-term
fiscal picture. It is not that we have a problem that taxes as a percentage of
our gross domestic product will be falling over time. Historically, taxes have
occupied about 18 percent of the nation's income over time. It has wobbled up
and down, but it has been about that.

Right now, if we
were to extend the current tax changes, all it would do is keep that level
approximately the same. But if we do not do that, there would be a significant
and constant rise in taxes as a proportion of GDP over time. In fact, within
six years, we would be facing the highest peacetime level of taxes as a
proportion of GDP and it would go on thereafter. So in other words, we are not
looking at a problem of revenue as a proportion of GDP declining.

What we are
talking about, which I think everybody recognizes, is a tsunami wave of
entitlement spending over time. It is about eight percent [of GDP] today in
terms of Social Security, Medicare, and Medicaid. This will double in 25 years
and go up beyond that. So we are really dealing with an imbalance due to
spending.

That said, there
is no question that for an entitlement commission's chemistry to come together,
taxes have to be on the table. I agree with that, politically, even though I
have a lot of hesitation in terms of the economics of taxes. But politically,
there is no question that Democrats will not come to the table if taxes are not
on that table.

Now, let me share
with you just for a few moments why conservatives are very nervous about taxes
being on the table and what might be necessary to make conservatives and
Republicans to be more acquiescent in that. There are three basic concerns
about taxes being on the table and tax revenue increases as part of the
equation. The first, as I said, is that for economic and fiscal reasons, taxes
are not the problem. Spending is the problem.

Second, there are
enormous economic concerns with raising taxes. We have a history in this
country of relatively low taxes, which I believe has been absolutely critical in
maintaining strong economic growth and explains the difference between economic
growth in the United States and Europe. So raising taxes could have enormous
economic consequences. In addition, when we start looking at deficits, it is
not clear to me that borrowing somebody's money is somehow worse than taking
it. The argument that deficits, by definition, are worse than raising revenue
has not been made clear. It is an issue of revenue now or revenue in the
future, to cover deficits. That discussion still has to convince us on the
conservative side that raising taxes is somehow a better economic decision than
having deficits within reasonable levels but higher taxes.

The third concern
is that conservatives have to be convinced that raising taxes does not just mean
more spending. The argument has been made often that "starving the beast" does
not work – that keeping taxes low, and letting deficits rise has not been an
effective brake on spending increases. I think that is a strong case. On the
other hand, "feeding the beast", I think, will occur if taxes are raised. I
just ask you to ponder this question. If we were to see a $100 billion a year
more in new revenue coming into the Congress, do you think the Congress would be
more likely or less likely to stand up to AARP on Medicare? I think you know
the answer to that question.

So in other words,
conservatives and Republicans have got to be convinced that raising revenue does
not just simply take the pressure off reducing spending, leading to both
revenues and spending increases and leaving us in exactly the same deficit
situation but with a much larger government in the future. But as I said,
politics demands that if we are going to see any successful commission, taxes
have to be considered.

Well, given my
concerns, what would have to happen for those of us on the center right to think
about taxes in this equation? It seems to me that the key is to combine
revenues with reform, and that is true on the tax side and on the spending
side. I think the only way to get entitlements under control is in fact to
combine a reduction in the growth of entitlements with reforms in entitlements
that would enable moderates and liberals to feel that the entitlement system was
primarily protecting people who really needed to be protected. I think on the
revenue side, we can look at revenue increases combined with reform that would
be beneficial economically in the future.

I think there are
two parts necessary to do that in any successful equation.

As I said, the
first is to link revenue increases with tax reforms that would speed economic
growth. I believe conservatives would accept that. We certainly believe in tax
reforms such as ending the double taxation of savings, rate reductions, or
stabilizing rates. And broadening the base of taxation is critically important
for economic growth and will bring in more revenue.

So let's make the
following deal. Let a commission lay out as a recommendation an increase in tax
revenue in dollar terms, but powered by tax reforms that conservatives could
accept. And let's also, as part of this element, tell conservatives to "put up
or shut up". If we conservatives believe that tax reform will power more growth
and bring in more revenues, let's link that forecast to other changes to
guarantee the revenues. Let's include automatic tax increases, perhaps through
changes in indexing and other steps, if reforms do not lead to the promised
increase in revenue. That default finesses issues like dynamic scoring and
other "inside the Beltway" or economists' debates about the linkage between
rates and revenue. That would be the first element.

Second, we may
remember that when Ronald Reagan negotiated with Mr. Gorbachev, he coined the
term "trust but verify." I happen to think negotiating with Mr. Gorbachev is
probably easier than the Congress. But I think that we have to adopt a slightly
different term, which is "distrust and verify." In other words, you must build
in steps to assure conservatives that revenues will not simply lead to more
spending. Enforceable steps that will link increases in revenue to reductions
in the growth of spending is essential to any deal.

Today, some people
argue, we ought to be putting back into place in the budget process the PAYGO
rules that once linked entitlement spending and taxes. But what the PAYGO rules
did was essentially say, "If you want to reduce revenue, you've got to reduce
entitlements. If you want to increase entitlements, increase revenue." We need
a "Reverse PAYGO". This would link revenue increases automatically with
required spending reductions, so revenues would go hand-in-hand with spending.
That is the kind of PAYGO rule that we need.

If we could agree
on that, and obtain a convincing recommendation from a commission that would be
based on these principles, and that had the support of both sides, I think we
could see conservatives acquiescing in spending in revenue increases. But tax
revenues must go in parallel with spending reductions. If we can do that and if
the controls are there, then I think we can get a deal on the revenue side.
Thank you.

Robert Bixby:
Thank you. Belle?

Isabel Sawhill:
Thank you, Bob. I first want to say I agree very much with everything that has
been said so far. At Brookings we have produced two books on the fiscal
situation facing the country - one in 2004, one in 2005. In both of those
books, we laid out solutions that included both spending cuts and revenue
increases and we got quite specific about both. There are many ways to bring
back some balance between revenues and spending, and the ways we suggested are
not the only ways. If elected officials do not like our ways then they should
suggest some others. But I want to emphasize everything that has been said up to
now about the need to get serious about this.

To further
reinforce what Bob Bixby said, we need to get the public better educated about
this, which is one reason we have all been going around the country talking
about these issues. I think what surprises people is we have a group very much
like the one assembled here today. In fact, this usually is the group. And we
all seem to agree with each other and the public is somewhat amazed because they
are so used to the more partisan conversation about this issue that they hear
from their elected officials.

Now, what I want
to just really focus on in my few minutes is health expenditures. They are the
real driver of future deficits. Those of you who have looked at the numbers
know that, but if you have not looked at the numbers you might not realize it.
Long-term deficits are driven not only by the aging of the population and
increased longevity, which Chuck Blahous said was first and foremost the
problem, they are much more driven by increasing healthcare costs per capita.
That is much more important than the demographics. The demographics play a
role. But if you look at the numbers carefully you will see that the problem
has been healthcare spending per capita that has been growing two to three
percent faster than per capita incomes or per capita GDP.

We hear a lot
about Social Security, and it is important, but Medicare is a much, much more
daunting challenge. The federal cost of Medicare and Medicaid together are
projected to increase at least four times as fast as the cost of Social Security
between now and 2030. That is a key factor.

Moreover, many
people think it is going to be very difficult, maybe even impossible, to reform
Medicare in isolation from doing something about the rest of the healthcare
system in the United States. If that is true, it has major implications for the
scope of work of an entitlements commission. It might not only have to take on
the Medicare and Medicaid issue, it might have to think about how changing
Medicare and Medicaid relates to the way in which we pay for healthcare more
generally in this country. That could be daunting.

The system as a
whole has three big problems. The first is cost, which I have already alluded
to and the growth of this cost. It is affecting not only federal budgets but
also state budgets, employers, and individual households.

The second problem
is access. Forty-six million people are uninsured. The third problem is
quality. We spend about twice as much on healthcare in this country as in any
other industrialized country and we do not get better outcomes.

So a commission, I
think, would need to think very seriously about the healthcare programs and the
federal budget, but also how to use those programs to move the entire system in
a direction that dealt in some way with these three big problems: Cost, access,
and quality.

If it was done
right, there could be some political benefits as well because it would not just
be a matter of saying "Eat your spinach, Mr. or Mrs. Citizen," it would be "We
are going to fix the healthcare system in this country for the long term. We
are going to make some major changes over time." It will take time. But in the
process, you are going to have a better healthcare system, which right now the
public is quite distressed about.

So we come to the
issue of fiscal responsibility through the healthcare door, at least in part.
The big questions that will have to be debated are how much of the cost of care
should be subsidized by the government and how much should be borne by
individuals? For example, should there be more income-relating of the benefits
in Medicare? Should Bill Gates have as much healthcare as an average worker who
has earned minimum wages all his life? Should we change the retirement age?
Should we go into Stuart's reform agenda on the tax front and continue to
exclude from taxation the value of the health benefits that people get through
their employers?

The President's
tax reform panel suggested that we should cap those tax expenditures, which are
close to $200 billion a year right now, so that is a big chunk of money. And as
Stuart has argued, that would lead to a more efficient and effective tax
system. Should there be a cap placed on total federal expenditures for
healthcare and how should such a cap be adjusted over time as medical advances
continue to make better treatments available? Can the government make more
information available and then create incentives for consumers and providers to
use that information to make better choices than they are making now? And, of
course, how do we make a transition from where we are now, which I do not think
anybody likes, to where we need to be in light of all the political
constituencies that have a strong stake in the current system?

These are huge
questions. If our political system could muster the leadership and the
discipline to reform healthcare in the United States, it could be a win-win
situation. Win-win in the sense that a restructured healthcare system could,
over time, produce enough savings to balance the budget while simultaneously
improving health care. Thanks.

Robert Bixby:
And we will turn now to Maya MacGuineas.

Maya MacGuineas:
Great. Thank you. Bob, thank you very much for The Concord Coalition hosting
this event today. Just to start with a simple answer to the question of does it
take a commission? I think sadly, given where we are right now, the answer is
yes. That is based on the fact that we are in a highly polarized environment,
and that there is just a lack of enough political leadership to really move the
issue forward without a commission. Some of the best political leadership came
from Charlie Stenholm who sits at this table.

In terms of a
commission, I think one important thing is that it be a holistic mission, that
we not compartmentalize the issue but that we look more broadly at entitlement
reform or entitlement reform and tax reform comprehensively because even though
here in Washington congressional committees are compartmentalized, and policy
expertise is compartmentalized, the problems really are not. And the question
is how do we deal with an aging society? And I think a tangential question that
should also be related is how do we deal with the fact that our budget is so
focused on consumption because of these programs that are growing and growing
that we are under-investing? So if you want to even broaden the mission
further, it would really look at the budget as a whole and whether it is
reflecting the proper values.

I want to talk a
little bit about Social Security, actually to move backwards and
compartmentalize it even when it should not be, because I had a very interesting
experience with two colleagues, Jeff Liebman who was the Social Security advisor
to President Clinton, and Andrew Samwick who was the Social Security advisor to
President Bush on the Council of economic advisors. The three of us have often
been in meetings where people say, "Well, if we just shut the doors and all of
the experts in this room sat down and thought about it, we could actually
resolve these problems."

We decided to
actually try to do that very thing with Social Security, and so the three of us
kind of representing the Republican, the Democrat, and myself, an independent
point of view, sat down and what we thought would be an easy exercise to hammer
out a Social Security reform plan, it actually took us nine months when we
thought it would take us about three weeks. So it is not that easy, but it is
doable, and the reform plan has been scored and it is solvent. And I want to
talk about some of the lessons we learned from that.

I think there are
really three big kinds of compromises that we had to figure out and grapple
with, the first being how much of the solution should come from revenues and how
much should come from spending. And you do come up with different answers when
you look at Social Security alone. For instance, someone might say, "Well,
let's split the difference. Let's fix Social Security half with revenue
increases and half with spending reductions." But if you actually put into the
mix the bigger issue, healthcare, then your answers become quite different, and
you realize that if you are actually going to split 50-50 between healthcare and
Social Security, we are likely to end up increasing our federal government by 25
percent, moving from 20 percent of GDP to 25 percent of GDP, give or take a
couple of points of GDP. But I think that illustrates one of the fundamental
divisions between liberals and conservatives. How much should be done with
revenues, how much should be done with spending reductions, but it also makes a
point of why looking at this through a broader lens is probably useful in terms
of the solutions you will come up with.

The second issue
we had to grapple with is who is going to bear the risk. In the past Social
Security debate, too often it was framed as the risk of the non-risky existing
Social Security program versus the risk of a new kind of Social Security program
where, with private accounts, individuals bear more risk. That is not the
appropriate framing because the truth is, as much as we do not like to admit it,
there is no such thing as getting rid of risk when it comes to these programs or
the government-run programs.

The real question
is what kind of risk are we going to bear? Is it the risk to taxpayers that
they have to pay more to support promises to current generations? Or, is it
risk to retirees that they will have benefits reduced, either current retirees;
probably not, given the political environment or future retirees who will not
get what they were promised.

The real question,
though, is diversifying that risk and thinking about the generational
implications of when the different changes to close the imbalances will be. So
I think moving the debate forward away from risk-free systems versus risky
systems will be useful. I'm thinking about what kinds of risks there are out
there and how to spread them.

And then one of
the final values we grappled with is how progressive to make any changes, and
here I had a really interesting experience where I thought my liberal colleague
would want to make the system more progressive, my conservative colleague would
want to make it less so, and in fact it was exactly the reverse. Social
Security, as you all know, pays benefits to everybody based on their
contributions, though it is more progressive, meaning people who are more
well-off have lower replacement rates. Both the conservative colleague and I
thought we should cut benefits for people who could afford it and hold
low-income people harmless. But there is an interesting tension here, where
there is a big concern that if you make the system too progressive, you will
undermine political support for it, so that it is the universality of the system
that keeps political support there.

This is one of the
really fundamental tensions that needs to be figured out. How do we make the
system more progressive to make sure it helps people who most need it, without
chipping away at the political support that many people who care about these
programs really are worried to move away from?

So we compromised
on all of those values, and let me say that all three of us had moments when we
woke up in the middle of the night, convinced that we had given too much on
them. But what made it possible is that if you start with values, if you put
what your values are on the table, one of the biggest ones for me was that any
reform plan be fiscally responsible and not borrow very much money or in fact
any money if possible--If you put those values out there, you realize that all
your colleagues that you are working with have values that are good. Nobody in
these debates is out there really trying to do something that is bad, and I
think starting with values first kind of softens or builds some of the political
trust, softens the mood and from there, you start to move towards the
compromises.

Personally, the
way I would look at this, I think there needs to be a grand bargain between
taxes and spending, particularly where we would increase taxes now because they
are still significantly below historical rates but scale back the promised
spending over time. And I would do more of this on the spending reduction side
than the tax increase side because I do not believe we can go up to where
current spending levels have promised that we would go or even halfway up there,
because I think it will be too detrimental to the economy.

Secondly, I think
we need to diversify the kinds of risks but I think we need to stop only
worrying about protecting current retirees and start worrying about future
generations because they will have new fundamental challenges to face that we
have not even thought about. I mean clearly, globalization or weapons or mass
destruction bring up new threats. You need a budget that is flexible so that
future generations can contend with these threats, and I think diversifying the
risks so that it is not just taxpayers who will pay whatever is promised but
that other individuals will also bear some of the risks will allow for a more
flexible budget.

And finally, I
believe we need to make the entitlement programs more progressive. I would say
compared to what we have today, I think the whole entitlement system should be
more progressive and smaller than promised. Now that is just one set of
opinions. Everybody's is valid here, and that is why I think a commission where
you start with the values and work out the differences and compromise them is
the best way to move forward and having sort of tried the small exercise in
that, it was hard but it was successful.

Finally, on the
makeup of the commission, I think there is a trade-off between experts and
politicians on the commission. I think with experts, you will clearly get
better ideas. I think they are willing to make the tough choices that do not
get people elected and that they do not have to fight for votes so they can talk
about things we know should happen. For instance, raising the retirement age.
Politicians run from that. On the other hand, if you want buy-in, if you want
things that are practical, you would need a politician sitting on the
commission.

So as we think
about this, I think the real question is when do we think that any
recommendations from a commission would be implemented? If the timeframe is
short, if we really think there is any likelihood that this is going to happen
in the next year or two, you want to put sitting members on this commission.

If you think it is
not going to happen until the next president is there, then you probably want to
have more of an experts commission where the really good ideas are there, they
are fleshed out, and they are sitting on the shelf for whenever the
administration that is going to move on this if this one is not able to, can
pick it up and run with it. I hope we will move sooner rather than later. The
political atmosphere is not terrific for that.

Now just in terms
of budget rules, Stuart mentioned PAYGO. Actually at this table we have three
people who have participated in not one but two PAYGO pep rallies. We are very
excited about budget rules here. But something like PAYGO is not enough in this
situation. PAYGO is something that is there to prevent worsening of the
situation. We need budget rules that are going to force actions and I think
there are really three keys here, which are triggers, defaults, and
alternatives. We need triggers in the budget rules, guiding Congress so that
there are times that decisions have to be made. We need defaults so that if
decisions are not made, we will put the country's fiscal situation back on
course, and that means across-the-board cuts or automatic tax increases, any
kind of default basically that Congress does not want so that they will be
willing to make the tough choices on themselves.

And finally, we
need alternatives where I think there are times when the country faces
important-enough issues that every member of Congress ought to be responsible
for having a plan. And that means if there is an issue that we as a country or
as Congress decide it is time to face and time to deal with, I think there
should be rules that require everybody to put forth a plan or sign on to one
that already exists. And one of the plans could be "do nothing," but I think
there needs to be a realization of what choosing to do nothing means. So again,
the three kinds of rules I hope we will look at are triggers, defaults, and
alternatives.

To sum up, as
Chuck mentioned, both of us have new babies at home and you kind of think that
having a child is really going to be the thing that makes you worry about the
next generation and these kinds of issues. And I'll tell you, as it turns out,
it is not. Having a child makes you worry about one, sleeping, and two, how are
you going to pay for a nanny. So I can see people start to get a little more
focused on their own issues. But I did have an experience two weeks ago. I
took a week off from doing my normal budget work and watching the budget blow up
and I taught a class of honor students from the University of Michigan. They
are called the Carson's Fellows and they came here to Washington for a week and
in fact they were in the Press Club. I took them around and they met with
leading experts on all sorts of areas of Washington politics and they were so
smart, so inspiring, and so discouraged by what they heard. And they kept
coming up to me and saying, "What can I do? How can we get involved? We do
care about these things. These issues affect us."

And I did not feel
like I had sufficient answers. I mean I did not feel like saying, "Well,
writing to your congressman or your senator is going to do enough." I used to
help run a group called Third Millennium, which was a grassroots group that
cared about young people and long-term issues. We had a few members. It is
very hard to galvanize young people to represent their own points of view but
they inspired me because they were not depressed after this. They were really
ready to think about these issues. They kept coming up with new ideas on Social
Security.

Charlie came and
spoke with them and they talked about his speech and the different ideas and his
plan for all the following days. And it is them who inspired me to think what
right do we have to sit around here and have kind of petty political
disagreements rather than really coming up with the answers so that when they
take over the country, they will be given a responsible budget, a fair budget,
and a strong economy. And then thinking a lot about what they can do, yes, I
think we need a commission. Yes, I wish the partisanship would be brought down
a number of notches here in Washington, but I also think we may have to go
farther. It may take fundamental political reform to really force Congress to
start addressing long-term problems in the way that they should and not just
punting on them and focusing on the short term.

So there is very
important work to be done. I say try everything that we can think of and at
least for me, these Carson's scholars, these really smart, next generation of
people in their 20s got me kind of rejuvenated to hope we can move this issue
forward as soon as possible. Thank you.

Robert Bixby:
Okay. Since Stuart is waiting for the sports analogy, Joe, I guess you get to
bat cleanup.

Joseph Minarik:
This is the final pit stop. As the late great congressman Mo Udall said on at
least one occasion, similar to my situation right now, "Everything has been said
but not everyone has said it yet." So I will try to be very brief and leave you
some time for questions. I have basically five points to make.

The first one, and
all of these have been made in one or another sense by the previous speakers:
Under the most optimistic projections, our fiscal situation is not sustainable.
No matter what the budget deficit is in 2009, the first of the baby boomers
start collecting Social Security in 2008, start collecting Medicare benefits in
2011, and it is all downhill from there. Without a serious change, -- and the
numbers, again, are not sensitive to assumptions -- without a serious change, we
are going to have serious fiscal problems.

Point two, the
only way out of this situation is a broad bipartisan agreement on remedies. It
will have to happen sometime. We really have two choices: Will it happen
through leadership thoughtfully and deliberately, or will it happen in a crisis,
hastily and with inevitable resultant flaws? That suggests to me that the right
way out of this situation is either a commission or a process on the order of
what was undertaken in 1990 and 1997 with a negotiation.

The essence of
both of those alternatives is that they must be meaningfully bipartisan.
Bipartisan means that the sensitive political issues that are involved in such a
negotiation have to be neutralized, which is to say, as has been mentioned
earlier, that the two sides in the discussion have got to agree at the outset
that they will not use the outcome of the negotiation as a political weapon
against the other. That was my third point, actually.

My fourth point
is: bipartisan does not mean picking off a few strays. You cannot achieve
mutual disarmament on these political issues, as I just described, without
having political leaders who can cut a deal and make it stick at the table. You
will probably want a blend of political leaders and experts, but without the
political leaders at the table, nothing will happen. You cannot have political
leaders at the table from both sides without having everyone at the table and
everything on the table. Otherwise, such a negotiation will never be agreed
to.

To make such a
situation come to a conclusion, you need presidential leadership. It was
mentioned that commissions have been most successful in the past when there has
been some compelling crisis or an action-forcing event. It is within the power
of a president to use the influence of his office to bring people to the table,
to hold them to account and to serve as a monitor over the process to make sure
that the process comes to a conclusion.

My fifth point: A
second-term president is uniquely situated to solve big, controversial
problems. The political science literature, at least in theory, suggests with
some frequency that it is possible for a second-term president not facing
re-election to bring the two sides of the partisan divide to the table; to make
clear to the public that he is insisting that a problem be resolved; that it is
on his head what the results are; and to force, through that declaration, the
two sides to bring the process to a conclusion. The one difficulty with a
second-term president is it takes at least eight years to grow a new one. So if
we do not take advantage of this opportunity, it will be a long time before we
get another one. In the context of the problems that we have been discussing
here, taking into account the exponential growth of the cost as we move into the
retirement of the baby boom, eight years is perhaps an impossibly long time to
begin to address these issues.

I would just like
to add one additional observation. We have talked about dealing with this
problem in balance between revenues and outlays. One thing that you want to
keep in mind and that is frequently cited, the working-age population and the
retirement-age population are shifting in balance with the coming retirement of
the baby boom generation. We now have one retiree for every three working-age
adults. By the time the baby boom is fully retired, we will be down to one to
every two.

Now what that
tells you is that the dependent elderly position is going to increase from
one-fourth of the adult population to one-third. Look at the math. It is
inevitable with that increase in the dependent population that by the time we
are done, we are going to need more revenue. And the policy problems that we
have to deal with, again, have been mentioned already.

The most serious
part of these problems is healthcare. We have very, very little on the table,
in the policy cupboard, to deal with the problem of growing healthcare costs.
That suggests that we are going to need to buy time as we move forward for any
suggestions with respect to healthcare -- and also with respect to Social
Security because of the fair warning requirements with respect to the
nearly-retired elderly. They will need fair warning before changes are
effective, so it is going to take some time to make them work. In the meantime,
we are going to need to have more revenues to slow down our present excessive
buildup of debt.

So that having been said, we have a difficult
political issue before us. We need to deal with it quickly and we need to deal
with it on a bipartisan basis. Thank you very much.

Robert Bixby:
Okay. Before we go to questions, I wanted to read something that I received
from Bob Kerrey, who is the co-chairman of The Concord Coalition and, of
course, he has co-chaired entitlement commissions and been a member of them. He
knew we were having this discussion today and could not be here with us but he
shared these observations with me:

"The commission
can only succeed if it is co-chaired equally by a Democrat and a Republican and
only if everything is on the table and only if they present the results in two
parts: A definition of the problem along with a list of solutions AND proposed
solutions."

I think those
observations are very consistent with what we have heard so far today.

I'm going to just
add one thing, which is the importance of public education. One of the things
that the commission might do is take some time to study public attitudes towards
these issues. And I do not necessarily mean "public education" in the sense of
telling people the sorts of things that we do with the charts and explaining
where the problems are, but getting a little bit further into that and hearing
from the public what their attitudes are about some of these issues. So that it
is not just a bunch of elitists that would be going out to lecture to the
public, or not just having people come to a commission hearing and rant about
their frustrations, but engaging in a dialogue with the public about these
issues.

And again, it
depends somewhat on the timing. If you want to have a commission report back
soon, you do not have the time to do that. But if you want to have a commission
that has some possibility of success, it would be a good idea, when we think
about the composition of the commission, to think about the American people as a
member of the commission and bring folks into the dialogue because I think that
is going to be very, very important.

That said, let's
turn to questions.

Questioner:
To begin with, I'd like to ask Stuart Butler what he meant by broadening the
base of taxation, and does everybody agree that borrowing is just as good as
taking money from taxpayers? And then finally, how do you get people to work
longer, which is an obvious part of the solution.

Stuart Butler:
Well, let me respond at least to the first two questions. In terms of
broadening the base, it is certainly a general principle of taxation to have a
broad base and low rates. An example of broadening the base is exactly what
Isabel referred to with regard to healthcare. We have whole sections of
compensation that people receive in the form of healthcare insurance that is
completely free of tax, including payroll taxes. That is a particular advantage
to middle and upper income people. So an example of broadening the base would
be to include health benefits as taxable income.

With regard to the
deficits and taxes, the point I tried to make was that there seems to bea
an almost puritanical economic assumption in this country that somehow borrowing
is by definition both morally and economically worse than taking people's
money. It is in fact only a question of saying, "Is it better to take now or to
take later?" When we start looking at purchasing of equipment, of houses, and
so on, we make calculations about paying over time. So my point there was
simply that it is not axiomatic that a deficit is worse than raising taxes. It
depends, and that therefore has to be thought through and discussed a lot more
than I think has been generally done in this debate.

Isabel Sawhill:
Can I say something about this? On the borrowing versus taxation, I think
there are two reasons why borrowing is not ideal. One is we are borrowing
increasingly from foreigners. We basically borrowed enough recently to cover
virtually all, or as Joe Minarik has pointed out, maybe a little more than all
of what we have been running in federal budget deficits. So we are going into
debt to the rest of the world, and that means that in the future we basically
mortgage a portion of our standard of living to people in other countries.

Secondly, we are
paying a huge amount of interest on the debt. Tell the average taxpayer that
one out of every five of their income tax dollars is going for nothing other
than interest on the debt, and that before too long that will be one out of
every three of their income tax dollars and ask them, "Is that not wasteful?"

There is a great deal of cynicism and concern on
the part of the public right now about what the government, the federal
government in particular is doing with their tax dollars. They do not see them
as being well spent but this is one area which is just total waste. The only
thing you get for paying interest on the debt is the right to continue to borrow
more.

David Walker:
The kind of debt financing we are doing now, if it was just for the global war
against terrorism and incremental homeland security costs, it would not be too
bad. But the fact of the matter is it is well in excess of that and it is going
to get a lot worse when the baby boomers start to retire, so it is really either
you pay me now or you pay me more later. That is the path that we are on right
now.

With regard to the
tax base, this country forgoes $700-$800 billion a year in revenues due to
deductions, exemptions, credits, et cetera. One of the things we are going to
have to do, just like we are going to have to do on the spending side, is we are
going to have to re-look at those and determine whether or not they make sense,
whether or not they should be targeted better.

We have to do the
same thing on the spending side. For example, the single largest tax preference
in the Internal Revenue Code today is the fact that no American pays income tax
or payroll taxes on the value of employer-provided and paid healthcare,
irrespective of how generous the coverage is, irrespective of their income,
irrespective of their net worth; so $180 billion or so a year just for that and
growing very rapidly. On the issue of working longer, we have now moved from
the industrial age to the knowledge age. It is brain power versus brawn power
that drives the economy. If you look at current workforce trends, we need for
people to work longer in order to fuel future economic growth. They have the
ability to work longer because more and more of the economy is now based upon
service industries versus manufacturing and as I said, based on brain power
rather than brawn power.

And yet, if you
look not just at our social insurance systems but also our pension laws, they do
not encourage people to work longer. Therefore, at a minimum, we are going to
need to change both our social insurance programs and our pension and other
employee benefits laws to encourage people to work longer and to allow them to
move from working full-time to phasing into retirement. For example, if you are
working for an employer and you want to go from full-time work to part-time
work, you cannot do that and draw on your pension. It forces you to change
employers. That does not make any sense.

And so arguably
the largest unutilized resource this country has is our "seasoned" citizens.
There are studies that show that the longer you stay mentally and physically
active, the longer you are likely to live and the happier you are likely to be.
And so we need to get the message and figure out how we can end up changing not
only government policy but private sector employment policy and practices to
recognize that reality.

Robert Bixby:
If people live longer, does that make our problem worse?

David Walker:
Not if they are contributing to the economy longer. The answer is no, not
necessarily.

Robert Bixby: It looks like everybody
wants to leap at your questions so Maya and Joe, both.

Maya MacGuineas:
Clearly revenues are going to have to go up. That is one of the things we all
agree on and it therefore becomes more important that the tax code is as
efficient as possible because your inefficiencies get greater as the taxes are
higher. Therefore, fundamental tax reforms should be part of the solution and
as Dave was just talking about, tax expenditure reform, I think, is the area of
the budget that really is in most need of fundamental reform.

I, however, do not
agree that whether you borrowed the money, where you get the money now or later,
it is the same. Borrowing makes sense if it is for investments. However, our
budget is not a budget that is focused on investments. It is a
consumption-based budget. If we were looking at a budget that was focused on
education and infrastructure and basic research, it might be a very different
case when it is okay to borrow. And it also not the same to think about for
individuals and for the government because when an individual borrows, they are
borrowing for investment but they themselves will repay the money down the road,
hopefully when their incomes are higher. But when the government borrows, more
often it is the next generation of people who are repaying that debt and it is
not clear that one, the budget will be more able to accommodate that if you are
weakening the economy, or two, that you will not have other needs that you want
to pay money for.

So I think there is a generational issue when it
comes to borrowing that is even beyond economic considerations, that you should
go through, and we do not really pass the test of either of them.

Joseph Minarik:
First of all, my personal favorites are dill and rosemary in different recipes
-- in terms of being a seasoned worker. In the debate between borrowing and
revenues, the simple reality is right now our debt is growing faster than our
GDP, so we would be doing well to convert borrowing into revenues.

There has been
reference here to the difference between the United States and Europe being
primarily or in a major degree, levels of taxes. I would just want to suggest
there is some controversy to that personally. I think that a country that can
have riots in the streets over a law that says that an employer has the right to
dismiss an unsatisfactory 25-year-old employee probably has differences from the
US economy that do not relate to levels of taxation.

In addition to that, just one further note, I
think Dave Walker put his finger on a lot of the questions about older workers.
The Committee for Economic Development issued a statement a few years ago on
this issue, and we continue to work on that, so go to ced.org and look for the
report on older workers, and you will get into a lot of the decisions that we
have to make as a society to make it easier for older workers to stay in the
workforce.

Robert Bixby:
Charlie, did you want to comment?

Charles Stenholm:
No one at this table has suggested the current spending is investment oriented
and any borrowing on our grandchildren's future to sustain the current economic
game plan is immoral to me.

Robert Bixby:
Let me say on the question of the mix between taxes and spending, that is
certainly something that the commission would have to grapple with. I think the
larger points are that all those issues need to be on the table, and that you
cannot borrow your way out of the current situation. We should not get too hung
up on settling that question before appointing a commission. Yes, sir?

Questioner:
I'm not sure I heard anybody mention the wave that could be created in another
revenue source other than taxes, mainly premiums on some of these insurance
programs, particularly Medicare. For example, would it be possible to offer an
incentive for proper behavior. Why not give a reduction in premiums or Medicare
to someone who is willing to sign a living will? Why not get into the numbers
that show the relationship between the cost of providing medical care and
influencing people's behavior through the use of the dollar?

Dave Walker:
A couple of things with regard to premiums first. Take the current premium
structure. Many Americans think that they paid for Part B under Medicare and
what they do not realize is 75 percent of the cost of Part B is paid for by
general revenues.

Questioner:
Absolutely. That is the problem.

Dave Walker:
Right, right.

Questioner:
That even premiums cannot be made…

Dave Walker:
No, no. I agree and I'm going to come to that. It is down from 50-50 in 1965
when the program was created. Secondly, as Charlie said and all of us have
said, everything has to be on the table. We need to think outside the box. My
personal view is for any system to work, whether it is a governance system, a
healthcare system, a tax system, you fill in the blank, you have to have three
elements for it to be successful and sustainable over time.

Number one, incentives for people to do the right
thing and that is part of the thing you are talking about. Number two,
transparency to provide reasonable assurance they will do the right thing
because somebody is looking. Number three, accountability if they do the wrong
thing. I would respectfully suggest in healthcare we are zero for three. No
wonder we have a train wreck coming.

Robert Bixby:
Anybody else on the panel?

Isabel Sawhill: Well, Maya talked about
triggers and one of the triggers in current law is that when the Medicare
trustees report for two years in a row (and they have already reported for one
year) that general revenue spending on Medicare will exceed 45 percent, the
President has to produce a piece of legislation addressing the problem and
Congress needs to consider it, and that could happen next year. That is not
quite what you were talking about because you were talking, I think, more about
linkages at the individual level, which we may come to but I think it is going
to be interesting to see what happens even with this trigger on Medicare.

Robert Bixby:
There are certainly some ideas for mandates instead of taxes. I guess it is
sort of a fine line as to which is which, but if you were thinking of Social
Security reform by the personal accounts, for example, one of the ideas is
whether to have a new mandatory add-on and there have been similar ideas for
Medicare as well. So that is certainly one of the ideas that could be on the
table.

Let me get a
question in the back there.

Questioner:
What are you assuming about the economy? Doesn't it help to have an economy that
is growing?

Robert Bixby:
Sure, but I don't think anybody would think we could grow our way out of the
problem.

Questioner:
What rate of economic growth would you need for that? And also, specifically on
tax reform, it apparently died. You have no media, as far as I know, on why it
died. Nobody offered an alternative plan. The policy generating apparatus in DC
is at a very low level. There is no discussion, for example, of energy. There
is no discussion on the travel deduction, healthcare deductibility, etc. I think
we have a communications problem. Have you contacted, for example, CNBC to do a
once-a-week fiscal policy show? Hardly anybody sees things that are even on
C-SPAN and they just do not know. They do not know the candidates they are
voting for and they do not understand the basis of fiscal problems.

David Walker:
Well, first thing. In my view, the country has four serious deficits right
now. We have a budget deficit, we have a balance of payments deficit, we have a
savings deficit, and the most serious of all, we have a leadership deficit. It
is a bipartisan problem. All of us at this table are part of the fiscal wake-up
call tour. We have already gone to nine cities around the country. We have a
bunch of other cities scheduled to reach out beyond Washington and go directly
to the American people, to state the facts, speak the truth and help them
understand what the consequences of inaction are, because there is a price to
inaction and it is a very high price.

We are looking for
ways to reach larger media. I have an agreement in principle to go on Meet the
Press. We are looking for other opportunities to be able to get the message out
to more of the mainstream media.

Candidly I and
many others here at the table, believe that we need to slow the bleeding between
now and 2008, and try to make sure that whoever is a serious candidate for the
presidency in 2008 is forced to deal with this issue in very meaningful ways.
There are a lot of efforts ongoing to try to help maximize the chance that that
will happen and I know we will continue to do what we can in the interim. But it
is amazing, the American people are a lot smarter than people give them credit
for and when you state the facts and speak the truth to them, they can get to a
sensible center solution pretty quickly.

However, a
significant majority in Washington is not in the sensible center but that is
where the country is. Center right, center left, but sensible center. That is
not where most of Washington is and solutions lie in the sensible center.

Questioner: Incredible. We did not hear
his response to the point that all of you made that everything has to be on the
table.

David Walker:
It is a non-starter if it is not on the table and it is a non-starter if the
President is not willing to dedicate significant political capital to try to
help achieve some legislative action based upon the recommendations of the
commission.

Robert Bixby:
I think one of the things that the commission can do is help define for the
public the scope of the problem because one of the issues is whether you can get
there if we just cut earmarks, if we just cut or if we have the right tax
policies, we will grow our way out of it. And when you look at the magnitude of
the problem, there is no way that those traditional solutions to traditional
deficits work for this long-term problem.

It is a new
phenomenon that we have never faced in this country before
¾
the growth of these entitlement programs and an aging population. And we find
when we do our fiscal wake-up tour events that communicating that message and
helping to define the scope of the problem is really one of the most important
things we can do.

Stuart Butler:
Can I?

Robert Bixby:
Sure.

Stuart Butler:
I would like to respond to that. I certainly think it is generally accepted
that, politically, everything has to be on the table. I think that is probably
accepted in both parties, at least privately, and at both ends of Pennsylvania
Avenue, at least privately. But there is a difference between saying everything
must be on the table and specific legislative changes must be a precondition.
For example, if some Democrats say specific tax proposals must be taken off the
legislative table before they will even talk, I do not think that is helpful.
Similarly, even though I happen to believe that the Medicare Drug Bill ought to
be repealed, or certainly scaled back, I think that saying that is a
precondition will stop many people joining this commission.

So I think there
is an important distinction between the general principle of everything on the
table and making as preconditions very specific pieces of legislation. I think
there is a critical difference there that has got to be observed.

I would also say to our friend at the back that
clearly an improving economy, a growing economy that brings more revenue in,
makes it easier to deal with the problem than one that does not grow more
rapidly. So that is the issue. It is not a question of saying there is some
magic percentage. It is just in general better, and that is why we ought to be
aware of the economic consequences of whatever action we take, and that raising
taxes or cutting spending is not just a bookkeeping exercise. Each has economic
consequences. So the linkage between revenue increases and economic growth or,
for that matter, deficit reduction and economic growth, have to be clearly
understood and thought about in the context of balancing the books.

Robert Bixby:
Did anybody on the panel want to respond?

Maya MacGuineas:
I think it is important that the White House, whoever sets up the mandate to the
commission, talk about what problem the commission needs to fix but it cannot
either say how they should fix the problem and they certainly cannot say how it
cannot fix the problem so it should be granted, that the starting point
is that everything is on the table. It does not have to say taxes are on the
table or taxes are not on the table. They should just say, "This is what you
need to address," and then every possible solution should be considered. In
terms of economic growth, economic growth is always good.

One of the
problems we face is that our Social Security system is calculated in a way that
benefits grow and the economy grows, so you just cannot grow your way out of the
problem, and one thing we have seen in countries around the world is that
countries with bigger economies start to spend more on healthcare. So as we
have heard from experts from all sides of the political spectrum, economic
growth is certainly beneficial. It alone will not resolve this problem.

And just in terms
of things like the tax recommendations that were shelved, I think many people
were actually pleasantly surprised by just how good and serious the fundamental
tax reform commission's report was and then equally as disappointed by the fact
that the President never even brought it up or discussed it. And I think it is
reflective that right now we remain in a period of political giveaways and
fiscal irresponsibility, and if you look at what just happened in this city, we
have an emergency supplemental spending bill which has many things in it that
should be budgeted for in a normal budget, and things that do not even have to
do with the emergencies.

And on the other side of the budget, we have a tax
cut bill where we just employed a tremendous gimmick where we are using one tax
cut to pay for another. Nobody seems to be ready to really shift the terms of
the debate to what they need to be, which are things we do not hear enough about
like shared sacrifice and hard choices, and those are the kinds of things that
will have to be in the entitlement commission. I think the country is ready for
that. Until politicians are ready to deliver that message, whatever a commission
comes up with will not be able to do any good until politicians are willing to
run with that.

Robert Bixby:
Dave?

David Walker:
In addition to not having any preconditions, which Stuart talked about, you
cannot have a litmus test to be appointed to it. In the case of the Social
Security Reform Commission by the President, there was a litmus test. You had
to support individual accounts or else you did not get appointed to it. That is
inappropriate because it undermines the credibility of the Commission.

As far as economic
growth, it depends upon what assumptions you want to use but let's just say
this. We run long-range budget simulations two to three times a year based upon
a variety of different assumptions. Under a reasonable set of assumptions based
on CBO's long-range economic growth assumptions and other factors and the Social
Security and Medicare Trustees' best estimate of the cost of those programs, if
one is a student of history, and if one can pass math, you will learn very
quickly there is no way we are going to grow our way out of this problem. The
numbers do not come close to adding up.

Robert Bixby:
Charlie, did you want to comment?

Charles Stenholm:
Getting back to sports and the infamous words of Yogi Berra, "That which cannot
go on will not." It is amazing to me how difficult that is for smart people to
understand. Everything has to be on the table. I mean everything. That means
any possible suggestion that anybody has got on how to make it better should be
on the table and should be discussed. PAYGO, we have heard PAYGO talked about.
It is amazing that we have had an impasse on something that worked because of a
refusal of some to consider putting revenue on a PAYGO scale. If you really
want to cut spending, then PAYGO is the way to do it because you could not have
the tax cut unless you got the spending cut first. These are the kind of things
that Congress needs to address and, with all due respect to my colleagues in the
current leadership, you do not get things done when you meet only 71 days during
a year. You do not get much done when you do not have oversight.

There is another
little solution that should be mentioned. Sunset legislation. Every committee
of the House should take a good hard look at everything under its jurisdiction
and find a few things we could do without. That would be one of the best places
to start cutting spending. It would work, but you have to spend a little time.

There is another
novel suggestion of political reform. It is called elections. One or two
things are going to happen this year. Republicans are going to get an
overwhelming election and a mandate to continue what they are doing or they are
not; or Democrats are going to get an overwhelming mandate to do something
different, whatever that is, or they are not. The people are going to have the
ultimate say, but the people would welcome some good, honest discussion and
debate in the press about some of the alternatives that are out there.

Robert Bixby:
I think we have time for another question.

Questioner:
Is it time to reconsider the idea of a balanced budget amendment based on the
inability of our leaders to really make an accomplishment? With all the
entitlements issues ahead of us, we still have this immediate problem of
hundreds of billions of dollars accumulating in debt annually.

Robert Bixby:
Let me do this. There was one other question so let me get both questions on
the table. We will answer them both and then wrap up.

Questioner:
I was just wondering real quickly how helpful or lack thereof was the recent $70
billion in tax cuts and the idea of another tax bill after that.

Robert Bixby:
Okay. The questions were on a balanced budget amendment and the impact of tax
cuts.

David Walker:
On a balanced budget amendment, part of it depends by how you define a balanced
budget. My understanding is 49 of 50 states have a balanced budget amendment.
The one that does not has a reserve, balances its budgets and has a reserve. I
think it is Vermont. Some states define balanced budget as balancing cash
flows, which means what do you do to plug the difference? You borrow.

California has
that. I do not call that a balanced budget. Frankly, on that basis, we have a
balanced budget. You are talking about a fundamental shift of responsibilities
under the constitution with the balanced-budget amendment. I think a more
practical standpoint and what we have to do, let's get back to some meaningful
PAYGO rules that force choices. Right now, there are no choices being forced.
And if you want to control the bleeding on the bottom line, you cannot, you must
not exempt one side of the ledger. You need to force people to make tough
choices and you need to give them excuse to say, "You know I would like to help
you out, but you are going to have to help me figure out how I'm going to pay
for that because I cannot do it unless I can figure out a way to pay for it."

And as Stuart
said, it is not just a matter of slowing the bleeding. Ultimately, we are going
to have to fill the gap and that means trading off reduced spending for enhanced
revenues, but not necessarily on a one-for-one ratio. A vast majority of the
federal government today, and I would commend to you the report that is
outside-GAO's 21st century challenges report, which is also on our
website,
www.gao.gov. A vast majority of government today – policies, programs,
functions, activities, organizational structure – are based upon the 1940s to
the 1970s, and they are out-of-date and not well-aligned with 21st
century challenges and realities, and yet there is virtually nothing being done
about it.

Charles Stenholm:
One of the happiest days of my 26 years in the Congress was the day Congress
passed the balanced budget constitutional amendment in the House. One of the
saddest days was standing in the back of the Senate a few weeks later and
watching it be defeated by one vote. I will forever believe that had it passed
then we would have a different economic situation today and would not have moved
into borrowing the amount of money we have borrowed and would have pursued a
different economic game plan.

I do not know
what. I could not predict that because it did not happen, but it was my belief
then, and I surely share the belief, that we need some kind of a constitutional
restraint on Congress and presidents regarding the future economics of our
country.

Isabel Sawhill:
If I can just add a couple of words here, it seems to me like a constitutional
amendment is very strong medicine, particularly when we are not even willing to
take an aspirin at this stage of the game. So I'm going to say go home and take
a couple of aspirin, and the aspirin would be things like PAYGO and also a
proposal that I have suggested, which appeared as an op-ed in the Baltimore
Sun. The proposal is to temporarily suspend indexing of both benefit
programs and the tax system until we get some fiscal objective achieved. And it
could be sold to the American public as the need in a time of war to ask for
broader sacrifice from the public and this would be broadly based sacrifice.
Everybody would pay just a little bit if next year's benefits, and next year's
taxes were not indexed for inflation. And then it could be used as an
enforcement tool to bring about some of the longer-term changes that we have all
been talking about.

Joseph Minarik:
We have differences of opinion on the panel among people who are very, very dear
friends. The balanced budget amendment is one where I have a hard time
swallowing. I'll just point out one thing; you can find yourself in a situation
where you have not got a prayer of balancing the budget and a constitutional
amendment would require that you get a two-thirds vote to clear a budget that
that does not balance. How do you get a two-thirds vote in the Congress? Well,
you generally get a two-thirds vote in the Congress by doing things that make
budget worse rather than better. As I say, these are differences among people
who share an ultimate objective, and we have worked very hard to try to achieve
it.

The other question
raised is how does the $70 billion worth of tax cuts just passed, and the
follow-on bill, contribute to the nature of the problem as has been pointed out
earlier here at the table? Even if you believe that these tax cuts are
tremendously stimulative of economic growth, realistically speaking you cannot
get enough economic growth to solve this problem. So whatever percentage you
think of that $70 billion you are going to get back in additional revenue, it is
a small part; so we are adding most of that $70 billion in debt, and that means
the next year we have to pay interest on it and that just makes the problem
worse. So at some point we have to, it seems to me, face up to the fact that if
there is a government out there that we believe we need, we have to pay for it.

Maya MacGuineas:
My board, the Committee for a Responsible Federal Budget's Board, is actually
quite divided on the issue of a balanced budget amendment. So we do not have a
position on it. It is a measure of desperation and I think many of us feel
desperate, but there is a lot of division among experts on that very issue. I
do think that there is a strong widespread belief in the things like returning
to spending caps and PAYGO. As I mentioned before, I think the new ideas will
be focused on what kind of triggers make sense, what the defaults should be if
we do not move forward, and how to force members of Congress to present
alternatives when they do not like reform options that are on the table.

In terms of what
is going on right now, I think with the budget, both the tax cuts and what is
going on the spending side, it is nothing short of shameful. We know that it is
a tight fiscal time and it is just like a scramble to continue to make things
worse and worse. And I think like we need an entitlements commission, we also
need a budget summit where everybody comes and really deals with the issue of
the deficit which, I will acknowledge, is small compared to the issue of
entitlement reform. Like healthcare dwarfs Social Security, entitlements dwarf
the deficit. But we cannot seem to make progress on even the smallest of these
issues for the very reason that they are not small. They are challenging, and
they are large and show that there are others that are even larger.

But I think the first step is we actually just have
to return to a world where basic mathematics applies. And if you want the
government to be smaller, you need to do it by reducing spending. And if you
want the government to be larger, you need to pay for it by raising taxes, and
people need to be willing to put forward the actual trade-offs that we are
talking about.

Robert Bixby:
Stuart, did you want to answer?

Stuart Butler:
When it comes to looking at the balanced budget amendment, I think I'm with
Isabel and the aspirin takers. While in principle I support the idea of a
balanced budget and balanced budget amendment, I would be concerned right now
that putting a lot of effort into that would take the oxygen out of the effort
to obtain things that we could do now, such as the budget process reforms I
mentioned. So that is how I feel about that right now. I think that with the
commission, and with the growing public understanding of the scope of the
problem, pursuing a balanced budget amendment would divert us from taking real
steps.

With regard to the
immediate issues of tax bills before the Congress, it seems to me that the
important thing is to stand back and say, "Let's have a serious discussion and a
decision about what level of taxation in general that we want to have in this
country?" And then, secondarily, decide how we want to distribute that
taxation.

The critical thing
to me is the level of taxes as a proportion of our nation's economy that is
appropriate. There are some people who argue that we ought to close the deficit
and we ought not to do anything about the promises made in Medicare and so on
and pay for the government we want. Okay, that means they support taxes going
up to the levels of France and Germany. Let them at least say that.

The critical issue is what level of taxation is
appropriate. I always find it very difficult to get those who argue for closing
the deficit and not touching entitlements to say what level they will be
prepared to live with. And that is part of the debate that has got to be
settled, I think, before we can get a consensus.

Charles Stenholm:
I would agree almost entirely, Stuart, with your last discussion on how we get
there in the spirit of the idea of a commission that we have talked about
today. And perhaps a little novel suggestion of something that might be
explainable on the wagon tongue of a trailer in West Texas or West Texas Tractor
Seat Common Sense. Perhaps, if we could have a bill along the lines of
political reform as well as entitlement reform, a commission would work and have
a proposal ready for the next Congress to begin working on January 3rd
of next year. The Congress could agree that there shall be no funds raised for
the next election by anyone who got elected in November 7th of this
year or intends to run in 2008, and they would spend at least three weeks, five
days a week, 40-hour weeks of the Congress dealing with the problems that we
have discussed in length today. That is one way to get there and have the
serious discussions that Stuart has talked about. I think this is something
that needs to be looked at.

And the only way
you do that is have the folks that we elect actually put their best foot
forward. And with the idea of a commission coming in and giving the good ideas
that would be considered either in total are amended, are changed, are thrown
out, the only way you get there is by taking a look at what is working and what
is not and find a consensus.

Robert Bixby:
Well, I think that is an action-forcing event
¾
actually showing up for work and not being able to raise funds.

It's time to wrap
up. I would like to thank all of the panelists. I think they did a terrific
job of setting out some of the tough choices that need to be confronted. And I
think we are all hopeful that if a commission is appointed, at least this time,
it could help educate the public about the broader issues at stake here. And if
everything is on the table, then maybe at some point in the future the necessary
actions will be taken.